If you’re like most people, you probably confuse a company’s ESG policies and carbon-related commitments with their actual sustainable performance.

Having policies and ESG reports are not enough to be sustainable. Simply stated, companies don’t always follow their own policies and they can tailor their reporting to make it appear as though they’re performing well in comparison to their peers.

The really good news, though, is there are ways in which a company’s sustainability can be measured and the 5 key factors to be considered are:

1. The company’s main products and their impact on society or the environment, if any;
2. The amount of fossil fuels used in making products or selling them;
3. How much tax the company pays;
4. How many times the company has received a fine for harming the environment, or breaking laws;
5. How much the company pays workers and whether it has appropriate policies regarding health and safety, modern slavery, and other practices.

If a company makes products/services that have a beneficial effect on society or the environment (e.g., agricultural equipment, sports equipment, organic food etc.) it is considered sustainable at a fundamental level.

In contrast, if a company makes products that can cause risk to people or the environment, such as weapons, tobacco, diesel cars or gambling machines, then it can be considered unsustainable from a social and environmental point of view.

Finally, take advantage of searchable and publicly available knowledge and use your investigative skills to interpret Annual Reports, Corporate Responsibility Reports, Sustainable Reports, Mission Statements, Company Profiles and other additional company resources when measuring a company’s actual sustainable performance.

Sustainability measurement is important to get right as it leads to long-term impact on customers, investors, the environment and employees. Companies can improve employee and customer engagement and make better strategic decisions about what products and services to invest in and how to operate. Fund managers can better understand and enhance their strategy, performance, and reduce sustainability risk.